This is perhaps the best time to buy a house from the point of view of affordability in the last decade or so. According to a CLSA report, income growth in the last three years has overtaken housing prices and affordability in the current fiscal is the best since 2005.
Mortgage rates have come down by 150 basis points in the last two years bringing them down to 12-year lows, and this is gradually improving affordability. Every 100 basis points mortgage-rate cut is equal to 5-6% price cut, CLSA has noted.
Data from research firm PropEquity shows the weighted average price of unsold apartments — across 8 cities — fell by 1.67% sequentially over the December quarter to Rs 6,185 per sq ft. Property prices in seven of the country’s top eight cities fell in the three months to March with builders eager to liquidate inventory in a market badly hit by demonetisation.
The price of a mass-premium quality house located in a metro city suburb having a ticket price of Rs 60 lakh has remained flat on a year-on-year basis. However, the post-tax household income has gone up by 7.5% y-o-y, in FY18 to Rs 13 lakh per annum, while the loan-to-value (LTV) is at 70%, and the mortgage rate at 8.5% — increasing the affordability much more than in the past.
LTV is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The affordability has improved much more for the lower ticket priced homes. For instance, for a `20-lakh house, credit linked subsidy scheme (CLSS) is around 10-12% of cost, which has led to improvement in affordability levels to best ever.
Further, the government is incentivising affordable unit construction through changes like affordable house having a carpet area of 60m², with affordable project seeing tax rates at effective 20% (minimum alternate tax rate) versus 34%. Also giving infrastructure status for such projects has further improved the sector’s ability to get cheaper loans.